The Real Estate Transaction Tax (RETT) Law in the Kingdom of Saudi Arabia (KSA) has undergone significant regulatory updates to streamline its application and enhance clarity for real estate transactions. Enacted under Royal Decree No. M/84 on 22 September 2024 and Council of Ministers Decision No. 239 on 17 September 2024, the updated law reflects Saudi Arabia’s ongoing efforts to refine its tax system in line with Vision 2030.
This article provides an overview of the updated RETT Law, its new exemptions, and revised penalties for non-compliance.
Key Features of the Updated RETT Law
Effective Date and Coverage
Published in the official Saudi Gazette on 11 October 2024, the updated RETT Law will become effective 180 days after publication. The accompanying Regulations, which will supersede the existing Implementing Regulations, are also expected to be issued within this timeframe.Definition of a Real Estate Company
The updated law specifically defines a real estate company as any company, fund, or entity that directly or indirectly owns real property in Saudi Arabia with the objective of generating income through sale or lease. To qualify as a real estate company:- Real estate properties must account for at least 50% of the company’s total fair market value of assets, as determined by the RETT Implementing Regulations.
- This definition narrows the scope of RETT to entities actively engaged in real estate operations, thereby excluding entities holding properties for non-commercial purposes.
- Real estate properties must account for at least 50% of the company’s total fair market value of assets, as determined by the RETT Implementing Regulations.
Alignment with ZATCA Guidelines
The updated definition aligns with the RETT Guidelines issued by ZATCA on 3 May 2024, which classify companies as real estate entities if more than 50% of their assets or capital are tied to real estate.
New RETT Exemptions
The RETT Law introduces additional exemptions to broaden the scope of transactions excluded from the tax. Key exemptions include:
Transfers to Licensed Charitable Organizations
Real estate transactions involving licensed charitable organizations for no consideration are now exempt, supporting philanthropic efforts in the Kingdom.Securities and Investment Funds
Transactions involving:- Initial public offerings (IPOs),
- Trading of listed securities, and
- Trading of units in investment funds are exempt, fostering capital market activity.
Mergers and Acquisitions
Real estate transactions as part of mergers and acquisitions are exempt, encouraging corporate restructuring and economic growth.Court-Ordered Forced Sales
Real estate transfers arising from a forced sale issued by a competent court are exempt, providing relief in cases of legal disputes or bankruptcy.
Revised Penalties for Non-Compliance
The penalties under the RETT Law have been revised to balance enforcement with fairness:
Late Payment Penalties
- Reduced from 5% to 2% of the unpaid tax for each month the liability remains unpaid, capped at 50% of the total tax liability.
- An additional 1% penalty applies if ZATCA identifies extra tax due during an audit.
General Violations
- Penalties for general violations are capped at the total tax due or SAR 50,000, compared to the previous cap of SAR 10,000 under the existing Regulations.
These amendments aim to incentivize timely compliance while reducing the financial burden on taxpayers.
Conclusion
The RETT Law marks a significant step in regulating Saudi Arabia's real estate market. By introducing additional exemptions and recalibrating penalties, the updated law aims to balance revenue generation with market growth and fairness.Real estate stakeholders must closely monitor the upcoming Implementing Regulations to ensure compliance and take full advantage of the exemptions provided.
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